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Why Is Alleghany (Y) Down 2.8% Since Last Earnings Report?

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It has been about a month since the last earnings report for Alleghany (Y - Free Report) . Shares have lost about 2.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Alleghany due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Alleghany Q4 Earnings Beat, Revenues Rise Year Over Year

Alleghany Corporation reported fourth-quarter 2020 operating profit of $6.77 per share, which beat the Zacks Consensus Estimate by 48.8%. The company had reported operating loss of $6.09 per share in the year-ago quarter.

The company reported net income of $11.28 per share in the reported quarter, which surged nearly six-fold from the year-ago quarter.
The company witnessed growth in premiums, which was partially offset by rise in expenses and lower investment income.

Full-Year Highlights

For 2020, Alleghany delivered operating income of $15.89 per share, which beat the Zacks Consensus Estimate by 15.1%. However, operating income decreased 33.1% from the previous year.

Revenues decreased 1.6% year over year to $8.9 billion.

Operational Update

Revenues for the fourth quarter improved 15.8% year over year to $2.7 billion. Net premiums written rose 12.6% year over year to $1.7 billion due to higher premiums in Reinsurance and Insurance segments. Net investment income came in at $130.9 million in the quarter under consideration, down 4.2% year over year. The decrease in net investment income was primarily due to lower interest income and, to a lesser extent, due to lower dividend income.

Fourth-quarter underwriting profit was $16.5 million against the year-ago quarter’s loss of $199.3 million. Total costs and expenses escalated 10.4% to $8.7 billion due to higher net loss and loss adjustment expenses, commissions, brokerage and other underwriting expenses and other operating expenses.

Segment Update

Reinsurance Segment: Net premiums written improved 10.4% to $1.3 billion, reflecting improving rates overall, growth in various traditional casualty and other professional liability lines of business in the United States and to a lesser extent, the impact of changes in foreign exchange rates. The increase was partially offset by a decrease in automobile-related business in the United States, arising from rebates at TransRe cedants in reaction to pandemic-driven reduction in personal and commercial automobile usage worldwide.

Underwriting loss of $34.6 million was narrower than the year-ago quarter’s loss of $162.8 million. Also, the segment’s fourth-quarter combined ratio improved 1150 basis points to 102.9%.

Insurance Segment: Net premiums written increased 20% to $411.3 million due to growth at RSUI. Underwriting profit was $51.1 million against the year-ago quarter’s underwriting loss of $36.5 million. The combined ratio of the reported segment improved 2560 basis points to 86.2%.

Alleghany Capital: Alleghany Capital’s revenues increased 46.3% year over year to $823 million. Adjusted earnings before income taxes increased nearly four-fold from the year-ago quarter to $76.9 million in the reported quarter.

Financial Update

Debt balance of $2.1 billion increased 21.9% from 2019-end level. Allegheny’s shareholder equity at the end of the fourth quarter decreased 0.2% to $8.7 billion from $8.8 billion as of Dec 31, 2019. Book value per share was $623.57 as of Dec 31, 2020, up 2.1% from the level as of Dec 31, 2019.

Share Repurchase Update

As of Dec 31, 2020, the company had $432 million remaining under its share repurchase authorization.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

At this time, Alleghany has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Alleghany has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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